Will there be a ‘Hard Brexit’? The risks for exporters are too high to assume ‘No’!

soft hard Brexit

If, come the 29th March next year, there is no formal agreement for the UK’s withdrawal from the EU, then there will be what is being referred to as a ‘Hard Brexit’.

Currently goods can move freely between EU member states, however this will all change when the UK leaves the EU with a ‘Hard Brexit’. So what does that mean for UK Exporters?

The UK will leave the EU VAT system

If you have ever purchased anything online from outside to EU then you will be all too familiar with the requirements to pay customs clearance and input VAT before the goods can be delivered to your door.

Well, the same will apply to goods imported into the EU from the UK after Brexit. Businesses selling directly to customers in the EU will have a big decision to make – do they include this import VAT in the cost to the customer, or do they ask the customer to pay on delivery?

Both options are potential nightmares; on the one hand they will have to register for VAT in the country where they supply, submit all VAT returns and account for the VAT; on the other they are asking a lot of their customers’ loyalty.

For Exporters selling to businesses there is the option to appoint a Fiscal Representative. In some of the EU countries, notably France, the Netherlands, Poland and Portugal, the appointment of a Fiscal Representative is obligatory.

These organisations administer all VAT obligations on your behalf, submit all relevant VAT returns and forms and can have the import VAT deferred for ease of cash flow. There is of course an additional cost burden on the exporter, but nevertheless it does break down a potential barrier to exporting into the EU.

The UK will leave the EU VAT Triangulation system

Currently a UK trader can purchase goods in, say, France and then sell them to a customer in, say, Germany. The goods can be dispatched directly from France to Germany with the paperwork flowing through the UK and the VAT being recorded within the Triangulation system.

Once the UK leaves the EU, the UK trader will have to register for VAT in Germany so as to provide the French supplier with a German VAT number.

The place of supply will be Germany so without a German VAT registration the goods cannot be delivered without input VAT being paid as the goods will be deemed to have been imported from the UK.

Again, the appointment of a Fiscal Representative can ease the administrative and financial burden here, but how many exporters have begun the process for engaging with and appointing a Fiscal Representative?

The UK will leave the EU EMCS

Whatever the final results of the Brexit negotiations in respect of our relationship with the Customs Union, you can guarantee that excise duties will continue to apply to certain goods, e.g. alcoholic beverages, tobacco products and energy products.

Currently excise goods move freely between the UK and the other EU member states under the Excise Movement Control System (EMCS). Post-Brexit the UK will no longer be part of the EU EMCS and these goods will have to be exported from the UK and placed into the EU’s EMCS at the point of import. The services of a local agent will be inevitable, an added cost burden for sure, but a means for continuing to trade within the EU.

Any company with contracts to supply goods or services into the EU will find themselves in a vulnerable situation if they are not prepared for a Hard Brexit. Remember that on the VAT issues all 27 remaining member states will have to approve any formal agreement with the UK, and with revenues from VAT being such an important part of every countries revenues to their Treasury, it is a huge risk to assume that an agreement acceptable to all 27 will be reached by 29th March next year.

On the positive side, help is at hand to assist all exporters with these three issues. For more information about Fiscal Representation, ECMS or how the VAT requirements will change post-Brexit, click here

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